Answer to Question #98338 in Macroeconomics for annie

Question

What are relative advantages, of a growth path based on relatively cheap capital, and a growth path based on cheap labor and a demand-driven growth?

Answer 1

Adding capital to the economy tends to increase productivity of labor. Newer, better, and more tools mean that workers can produce more output per time period.

Another way to generate economic growth is to grow the labor force. All else equal, more workers generate more economic goods and services. During the 19th century, a portion of the robust U.S. economic growth was due to a high influx of cheap, productive immigrant labor. Like capital driven growth however, there are some key conditions to this process. Increasing the labor force also necessarily increases the amount of output that must be consumed in order to provide for the basic subsistence of the new workers, so the new workers need to be at least productive enough to offset this and not be net consumers. Also just like additions to capital, it is important for the right type of workers to flow to the right jobs in the right places in combination with the right types of complementary capital goods in order to realize their productive potential.

Benefits of demand driven growth

Some of the benefits associated with DDMRP include the following: 

• Improved Customer Service - With DDMRP, you can expect to achieve a much higher percentage in terms of customer service and on time fill rate performance.
• Correct-Size Inventory - Minimize your inventory through drastic reductions while also improving overall customer service. 
• Lowering Overall Cost - Lowering cost related to expedite activity and false signaling. These include partial ship, cross-ships, schedule break ins, and more.